A Conservative-run county council has signalled it is close to effective bankruptcy after admitting that “severe financial challenges” mean it is unable to meet its financial obligations in the current year.
Northamptonshire county council issued a section 114 notice on Friday afternoon imposing financial controls and banning expenditure on all services except for its statutory obligations to safeguard vulnerable people.
A section 114 notice is effectively an admission that a council does not have resources to meet current expenditure, that its financial reserves are depleted and that it has little confidence that it can bring spending under control in the near future. It is understood Northamptonshire is the first local authority to issue a section 114 notice for two decades.
The news comes weeks after the Local Government Association (LGA) warnedthat years of shrinking budgets, coupled with increased pressure on social care and child protection services, would leave many councils “close to the edge”. The LGA estimates that councils in England face an overall funding gap of £5.8bn by 2020.
Although councils cannot technically go bankrupt, a section 114 may force central government to intervene to ensure that local services are sustainable.
The council said: “The notice has been served in light of the severe financial challenge facing the authority and the significant risk that it will not be in a position to deliver a balanced budget by the end of the year.
“Councillors have 21 days to discuss the implications of the section 114 notice and this is due to be addressed at the full council meeting on 22 February. The notice does not affect staff pay and the council will continue to meet its statutory functions.”
Northamptonshire revealed in December that it would increase council tax by 5% in 2018-19 while cutting its spending by £34m. Councillors said this was necessary to meet soaring demand for services at a time when central funding was being slashed. .
It is understood that the council is facing a £10m overspend on its budget this year, mainly driven by rising demand in adult social care services. The financial situation has been exacerbated by forecasts that £27m of hoped-for savings this year have failed to materialise.
Andrew Gwynne, the shadow secretary of state for communities and local government, said: “The failure of this Tory-run council shows that their approach to managing our public services doesn’t work.
“There have been deeply worrying reports for a number of months that this council was failing in its duty to the people of Northamptonshire – and now these people will pay the price for this negligence.”
An independent investigation into alleged financial and governance failings at the council was announced by the communities and local government secretary, Sajid Javid, last month.
A spokesperson for the Ministry of Housing, Communities and Local Government said: “It would not be appropriate for us to comment while the inspection is ongoing.”
The county council leader, Heather Smith, had welcomed the inspection and said it was an opportunity to make clear to ministers that the recent funding settlement for local authorities was inadequate.
She said: “We have been fully open and transparent with the government about our situation and have been direct in our request for assistance. We have also been clear that our proposed funding settlement from them includes no recognition of the pressures we face with the escalating cost of, and demand for, adult social care and children’s services respectively.”
Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy, told the BBC that Northamptonshire’s move was highly unusual and said it was the first section 114 notice for two decades.
Last month the council said it was considering selling its new £53m headquarters,which were officially opened last October.